I remember a conversation I had with one of my college professors several years ago. It was an exciting night; as a senior in the International Studies department I had been chosen to attend a reception at the college president’s home to honor a guest speaker. On the car ride from the dinner to the auditorium, the professor asked me about my plans after graduating. These were scary times because the transition jitters from college to the “real world” were starting to get to me. I had no job lined up, but I was afraid to tell him this. After all, I was chosen for this special dinner so the professor must have thought I had a great plan together that would make his department proud. Perhaps he saw this fear on my face, because he changed his tone and became very down to earth. He intimated to me that when he had his first job out of college, all he seemed to do was buy clothes. He had been so poor in college that once he got his first few paychecks he just went crazy in the clothes department. He chuckled at remembering this because he now thought that his reaction to a change in his financial situation was so silly.
My husband and I have had a major change in our financial situation. We are past that “first paycheck” stage of post-college (post-military for my husband). And we have (hopefully) passed the debt stage of our lives, though we do still have a low rate mortgage. Instead, we have entered the “non-mortgage, debt-free” stage. It’s been over a year and a half since we accomplished this goal of ours, and yet I am still trying to find our footing. What do I mean by this?
The Aftermath of Debt Payoff
No one really talks about the aftermath of debt payoff. It is touted as a land of milk and honey (and it is pretty sweet), perhaps something that feels out of reach for many and is put on the “one day” list. For months, years, or maybe even decades we work towards a tangible goal with concrete results. And then…the goal is met. We are absolutely thrilled to be out of the $25,000 of debt (student loans, car loan, and engagement ring). But there is a bit of a void on the other end. We are in uncharted territory, and have not quite figured out where to go from here. Our financial situation drastically changed, and we are still trying to find new ground.
There have been noticeable changes to our household since paying off this debt. Since this is hardly talked about on the internet (most blogs discuss paying off debt, while others talk about accumulating wealth), I’d like to take the time to outline what has changed for us and a few things that have remained the same.
What Happens After Your Debt is Paid Off?
- Frugality is King, with Some Changes. Perhaps it is easiest to start with what has stayed (mostly) the same. I am frugal by heart. It is just in my blood and I would not choose another way because it is not who I am. Paul has become semi-frugal from living with me. He gets excited now when he shaves $15 off of groceries with coupons and sales, or finds a practical solution to a problem around the house without having to make a run to the home store. We still use coupons, shop sales, use reward point programs, and stick to a budget. We both have continued and will continue on a frugal path no matter what our financial situation is, though there are some changes that are discussed further below.
- Caring about Other Priorities. When in debt payoff mode, saving money, making extra money, and using all the money we can find to throw towards debt was the top priority. We knew that this time period would not last long (we were “gazelle intense” for about a year and a half), and were willing to make many sacrifices during this time period for a bigger payoff later. Now that we met our goal, we’ve made other priorities (including Paul’s new television!). This includes travel (we honeymooned in Austria for 11 days after the debt was paid off, and just came back from an 11 day trip to Alaska, all paid for upfront of course), time and convenience.
- Saving Up for All New Purchases. Paul hates debt as much as I do. In fact, before he met me he had paid off the remainder of his student loan debt early (that was a good sign!). Now that we dug ourselves out of the $25,000 of non-mortgage debt, we have taken a vow to pay for things up front from here on out. This includes things like vehicles, vacations, and housing emergencies.
- Increased the Food Budget. Before we were debt free our monthly grocery budget was $250 (there are two of us, and two cats). Now that we are free of our non-mortgage debt, we have increased our grocery budget to $300 per month. We both love to cook, and this extra affords ingredients for more exotic fare that are both fun to make and to try. Of course, food prices have also increased since we paid off our debt in 2010, so the extra has helped with just keeping the status quo.
- Accumulating Savings above a Fully Funded Emergency Fund. While paying off debt any money that was in savings was part of our emergency fund. It was not fully funded (8 months of expenses during the recession, 6 months in a good economy), but we did have several thousand dollars stashed away. It should also be noted that we fully maxed out both of our Roth IRAs during this time period, as retirement savings are very important to us. Now that our non-mortgage debt is paid off, we have a fully funded emergency fund, and are accumulating savings above and beyond the emergency fund. This leads to the next few changes.
What Should We Do Next?
We are currently trying to figure out what to do with the extra money, both accumulated savings above the emergency savings amount, and the extra cash flow of approximately $950 per month. This is a great dilemma to have, but is still something we need to figure out. Should we work on paying off our mortgage? Should we invest the extra?
Are you in debt payoff mode, or accumulation mode? Do you think paying off a mortgage early is the best idea, or investing?